Carbon price will decide

THE coal industry is certain to be affected by the introduction of an emissions trading scheme, but the extent of the impact will not be known until the scheme rules and carbon price are determined, according to an emission specialist.
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Staff Reporter

E3 International principal Srian Abeysuriya said while details of the scheme are dependent on the federal election results, some multinational mining companies are proactive in considering carbon costs and liabilities in feasibility projects.

Abeysuriya explained that a scheme’s introduction no later than 2011 may financially affect each minesite and add a financial burden to any projects in the pipeline that must be factored in.

“Certainly this will influence the viability of projects and a lot of companies are looking at ways of reducing their emission liability, either by changing mining methods or converting waste gas to energy that would avoid future greenhouse liability and, subject to scheme rules, entitle them to a carbon offset [credit],” he explained.

The system is complex. Miners will be liable for any emissions of waste mine methane gas or from the burning of fossil fuels or diesel onsite to power their mine. They may, however, be able to reduce their liability and may be eligible to create a carbon offset if the gas, which would otherwise be wasted, is then flared or converted into electricity.

Traditional coal seam methane power generation projects that are not based on waste mine gas are likely to face a direct liability under the emissions trading scheme and importantly may not receive favourable carbon accounting treatment for “destruction” of methane, as this gas is not a mining by-product and would otherwise not be released into the atmosphere.

Abeysuriya said sites that currently host a waste mine methane gas power station could receive duel benefits, firstly in reductions to the mining company and potentially in creation of offsets to the power company, but it is unclear if this will be a certainty as the scheme has not yet been defined.

One thing is certain though, the emissions trading scheme is unlikely to hamper Australia’s export coal trade, with both political parties supporting a permit application system whereby mining companies that prove their carbon bill will affect export prices and trade will be considered for financial compensation.

After five years this financial compensation is likely to be linked to the individual mining operation’s relative performance to world’s best practice.

The same can not be said for production bound for domestic thermal and coking markets, but Abeysuriya explained it is impossible to tell what will happen in the future.

He said ultimately the scheme works to encourage the switch from high emissions intensity fossil fuel power generation, such as coal, to cleaner sources, like gas or clean coal technology.

“The price of fossil fuel electricity will rise because suppliers will need to pass on costs imposed by the carbon cost, so miners that buy their power will face a price increase and likewise for companies that use diesel power generation onsite, they will be footing a carbon bill,” Abeysuriya said.

“Eventually as the prices rise there will come a time when it is no longer economically viable to use conventional coal technology for electricity and companies will switch to cleaner options like gas, at least that is the plan.”

However, when a similar scheme was introduced in Europe in 2005 it was paralleled by a rise in gas prices and the predicted rush to switch did not eventuate.

The European scheme enters its second stage in 2008, which sees the carbon price increase, and is being closely watched by the Australian industry.

Abeysuriya is confident Australia can learn much from the European experience, including the importance of getting the scheme design, and carbon price, right.

He said if the price is too low there is less incentive for companies to change their practices, some waste mine methane projects might not be deemed viable, and the switch to green energy would have less financial pressure, while if the price is too high the industry could suffer.

Draft legislation was introduced this week that outlines a national emissions reporting scheme, under which companies will have to report their energy consumption and carbon emissions by July of next year.

The reporting threshold will then be tightened annually and after three years only companies that emit more than 50,000 tonnes of greenhouse gas or consume 200 terajoules of energy will be required to report annually.

Companies will also have to report on any single facility that emits more than 25,000t of greenhouse gas or uses 100 terajoules of energy in any financial year.

Carbon emissions trading is set to be introduced in Australia by 2011.

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